Operating a Home Center Warehouse Is No Slam Dunk

In preparing for this month’s CSG Snapshot, which featured the founding of The Home Depot in 1978, I began to contemplate a number of the giant box, home center warehouses that have adorned our industry’s landscape during the past three decades. Consistently while attending national industry trade shows, I generally am greeted by a cacophony of references to the ‘Big Three”, the long-time leaders of our industry.

For well over two decades the Chain Store Guide Index of Leading Companies has featured The Home Depot, Lowe’s and Menard at the top, in that order every year. At various times through these decades each could lay claim to being the most successful at that particular time, aside from the constant marker that is annual sales.

Home Depot’s history can be marked by three distinct eras, representing the three executive reigns under which the company has been run. The first reign, of course, was under the auspices of its founders, commonly personified by Bernie Marcus and Arthur Blank. This group essentially invented the platform from which the successful home center warehouse chains have been run. Their key innovation wasn’t just the scope of location size, though their aim initially was to launch a prototype that outsized all competition. Over this they built in efficiencies which were designed to lead the company to thrive, grow and quickly lead the industry.

These included creating a vast product mix, which made the company invaluable to do it yourselfers and builders alike. As their legions of customers rapidly grew along with their store count, they were able to demand distribution direct from many manufacturers. At this point, as per their initial design, the retailer now controlled price along with conditions and terms of distribution.

As the company rapidly grew in size and popularity, few manufacturers could ignore the potential of selling through The Home Depot. Eventually, few could afford not to sell through The Home Depot.

Additionally, the founders carefully crafted their inventive platform to create a retailer that they would enjoy shopping. Here in addition to competition-beating low prices and vast assortments of product, they strove to create a competent and happy work force in an environment of offerings of products and services of which the average consumer has little knowledge. The founders knew that many shoppers entered stores in this industry knowing little more than what they hoped to accomplish on a home DIY project. Customers needed guidance as to the best means of achieving their project goals and then which products are needed and when, to assure success.

Thus the founders established a policy created to attract industry professionals who already had considerable experience with essential backgrounds in fields such as plumbing and carpentry. Electricians were at a premium. Then the founders designed an internal, advanced learning system. A system of classes was established to both determine the knowledge of employees and then further it. Testing was standard and ultimately determined raises and pay scales. Of course everyone was a winner here. Employees grew their skills, the store gained in reputation and customers were better instructed as to the advancement of their home projects.

All three of our top companies now operate from similar, though distinct platforms. With all the talk these giants engender across the spectrum of industry veterans, one would think the landscape would be well populated with home center warehouse retailers. Of course, that isn’t the case. Home center warehouse chains simply are no longer entering the marketplace and haven’t been for some time.

In fact, on writing my Snapshot and recalling the founding of The Home Depot, surprisingly a number of home center warehouse retailers came to mind and all had departed the scene long ago. Thinking back on the prominent warehouse retailers of a couple of decades ago I recalled the likes of Builders Square, HomeBase, Home Quarters Warehouse and Handy Andy.

In the front-end of Chain Store Guide’s annual directory of Home Center Operators and Hardware Chains, as well as accompanying our online database, there is a listing of Details & Definitions defining criteria for inclusion in our products. The definition for Home Center Warehouses states that individual locations are ‘usually greater than 70,000 sq. feet’. This definition was created to include the earliest iterations of home center warehouses and remains intact to this day.

Currently CSG’s industry database includes just five companies operating home center warehouses. In addition to the Big Three, the other two companies are essentially independents operating just five locations between them. Of course Chain Store Guide relies on individual retailers to define their store types as well as selling square feet.

That said, it seems curious that with all the success the Big Three have enjoyed, no other chains have entered the market for quite some time. Of course at this relatively late date, many feel the landscape is saturated. Big boxes require communities with big populations to succeed. Recently Home Depot and Lowe’s have essentially curtailed expansion plans while privately held Menard continues its traditionally moderate regional growth with seeming ever larger locations. That said running big, box home center warehouses successfully is clearly no slam dunk.

Arthur has worked at Chain Store Guide for 20 years. He received a B.A. degree from City College of New York and attained a master’s degree in electronic communications from Brooklyn College. Please contact him if you have any questions or comments.